tv Nightly Business Report PBS December 12, 2012 6:30pm-7:00pm PST
captioning sponsored by wpbt >> this is n.b.r. >> susie: good evening, everyone. i'm susie gharib. a surprising pledge from the federal reserve today. it will keep interest rates super low until unemployment drops to 6.5%. >> tom: good evening,. i'm tom hudson. the central bank also will continue buying billions of dollars of government bonds in its effort to keep interest rates low. pimco c.e.o. mohamed el-erian will join us. >> susie: and the legal marijuana business-- two states okaying it for recreational use. we talk with one company profiting from medical marijuana products. >> tom: that and more tonight on "n.b.r." >> susie: an historic move today by the federal reserve. fed chairman ben bernanke and
other policy makers said they will keep their key interest rate near zero until the unemployment rate falls below 6.5% or inflation rises to 2.5%. now, this is the first time the fed has set a clear economic target for how long interest rates will stay at record lows. the surprise decision means the central bank will continue stimulating the economy by buying bonds. darren gersh explains the dramatic move. >> reporter: ben bernanke and his colleagues will no longer mark a date on the calendar for when they expect to begin raising interest rates. from now on, they'll make that call based on a target for the unemployment rate and inflation. >> it'll act to some extent as an automatic stabilizer. so if the outlook worsens and that leads markets to think that the increase in rates is further out in the future, that will tend to lower longer term rates, and that will tend to be supportive of the economy. so that has an automatic stabilizer-type effect. it offsets adverse shocks. >> reporter: as it turns out,
the fed expects the unemployment rate to fall below 6.5% until 2015, exactly when the fed said a few months ago it expected to begin raising interest rates. so this isn't much of a change in policy. bernanke also said the central bank will continue buying bonds, $85 billion a month, to help bring down interest rates and boost growth. and the fed plans to keep doing that until the labor market shows a solid pickup or there are other signs of trouble. >> if future evidence suggests that the program's effectiveness has declined, or if potential unintended side effects or risks become apparent as the balance sheet grows, we will modify the program as appropriate. >> reporter: the fed will also look at broader measures of the labor market including the hours people are working and payroll growth. but the unemployment rate target still raises some concerns. >> the unemployment rate is a flawed metric. it's flawed because of these wide fluctuations that you see given what is going on in the labor force. and, as a result, it's sort of rendered virtually useless, the unemployment rate; yet that is going to be one of the fed's key
guide posts. >> reporter: so, tomorrow is ben bernanke's birthday, and he made it very clear the best gift he most wants to get is a deal on the fiscal cliff that prevents the economy from falling back into recession, susie. >> susie: well, he better wish that again when he blows out the candles on his cake. at the present -- you know, i was struck by how much he talked about the fiscal cliff in very clear language, saying that it is a serious problem, it is already impacting the economy. and here is the important part: there is really nothing more the fed can do about it to offset going over the cliff. darren, you've been talking to so many lawmakers on the hill. do you think they're getting his message, and also in the white house as well? >> i really don't think so. i think they're aware that there are economic risks out there, but the battle between the president and the republican party and the speaker is kind of like that old saying about when elephants fight, the
grass gets crushed. >> susie: i never heard that before. >> well, they're focused on the very big issue of tax rates, what the future of the fiscal policy of the country is. yes, they understand there are some economic risks, but i think they're battling it out for the big prize. they know what he says, but it is not influencing them. >> susie: well, you know, everybody has been saying this is historic, it is unprecedented, but when you really get right down to it, what does this mean for real people, like the people in our audience who are listening to this? what does it mean for the real economy? >> what the fed is trying to do is basically they're saying -- in some ways, if you listen carefully, they're trying to speak beyond wall street to main treatment. street. they are trying to say, we understand that the job market is still bad. we're not going to stop doing everything we can until the job market gets back to a reasonable level and is on track to recover. they're hoping that they
can get enough confidence going on main street, among consumers, to keep that going that this policy statement helps give some extra oomph. they get some benefits from the communications that actually helps the economy. >> susie: he was really clear, and plain-spoken in that press conference. thanks a lot, darren. we enjoyed you're report. washington bureau chief, dadarren gersh. >> thank you. >> tom: so, with no major economic data today, stock markets were focused on the federal reserve the entire session. the major indices jumped midday after the central banks announcement it would continue supporting the economy, but those gains didn't last long. the dow fell three points, the nasdaq dropped 8.5, the s&p 500 closed essentially unchanged. >> susie: for more analysis on that unprecedented fed decision, we turn now to mohamed el-erian, c.e.o. of pimco. >> susie: mohammed, great to see you. so you've had time to think about what the fed said. what is your take on this
unprecedented move? is this a good thing? is this a bad thing for the economy and for the outlook going forward? >> my take is basically what is showing in the market today, which is to combine the words "unprecedented" "surprising" with unchanged markets. how do you do that? the analogy, susie, is look at the patient who is taking an experimental drug, that hasn't been clinically tested. professional investors like the idea that the fed is all in, and they like the idea that there is some drug out there that can help the economy. so they get excited about that. but at the same time, professional investors realize we're in totally unfamiliar territory. the operational modlities are complicated, and it has not worked in the past. so i reacto react as, you know what, this is neither good news or bad news. this is just a
confirmation that the fed is all in. it doesn't speak to what is going to happen to equity prices on its own, but it does speak to certain things. it speaks to a weaker dollar, probably higher gold prices, and more interday volatility. >> susie: so that begs the question then, what should investors be doing with their money. they know rates are really going to be super low for a while. we know the wall street saying, "don't fight the fed." so where should people put their money right now? >> the most likely scenario is that you get a bit of tranquility and then something breaks. and it breaks in the sense that systems are not built to be run at artificial interest rates. and with the fed being both a player and a referee in markets. so the most likely outcome is the benefit of tranquility and then a higher risk of something breaking. so what we're doing is
taking down risks. it is a wonderful time for risk assets. it is time to reduce your risk exposure, and it is time to build a little more inflation protection in your portfolios. >> susie: mohammed, are you buying treasures at this time? would you suggest investors get back to treasuries? >> i would say focus on inflation protected treasuries or tips. part of this message from ben bernanke is that the employment objective is really important, and they're willing to tolerate higher inflation to get to the employment. >> susie: pimco has backed away on and off during the last two -- year or two on bonds. do you still think there is a bond bubble? >> we believe it depends on which bonds you're talking about. let me be specific. u.s. treasuries, if you're talking about the long
maturities, 15, 20, 30 years, i would say be careful. in most scenarios, those come under pressure. if you're talking about the shorter maturities, we think there remains value. not as much as they used to be, but there is still some value. 10 years and in, it is safer. 10 years and beyond is dangerous. if you're going to other bonds, it depends on quality. investors need to focus on companies that are sovereign, with very strong balance sheets, explosive growths and positive cashflows, because you're going to need all three things to navigate this small, complex environment. >> susie: let me ask you real quickly before we leave here about the fiscal cliff because ben bernanke talked a lot about that today. we discussing that with darren about all of the risks. there is a lot of back and forthwith lawmakers in the white house. what is the best possible outcome you're expecting and hoping for? >> so it is different things. so what we hope for is that our politicians come together and agree on a
grand bargain that combines the following: medium term fiscal reform on both the revenue and experexpenditure side. a small upfront stimulus, and a set of other policies that help our economy grow. that's what we hope for. that's what should happen. what is likely to happen is a mini bargain, at best. >> susie: we're going to have to leave it there, mohammed. hopefully you'll come back to us again. we really appreciate your time. mohamed el-erian, c.e.o. and coach investment officers at pimco. >> tom: still ahead, the hurricane sandy relief concert tonight that's expected to raise tens of millions of dollars. how safe is your money when you give it away to a charity?
>> tom: the federal reserve continuing to pump money in the economy, always brings up concerns about inflation, but many commodity prices remain below the current prices. lincoln is with us from the c.m.e. group in chicago. what do you think the federal reserve's actions today and the worries about the economy, say about commodity demand in the next year? >> it looks as though the federal reserve thinks the commodity demand will continue to be weak. in fact, as you rightly point out, many commodities off their recent highs made in late august, early september, continue to suggest that the demand picture, the actual structural issues that ben bernanke and the team are worried about are still very much in play. a very weak economy means weak demand in the
commodity complex. >> tom: it sounds like the commodities are responding to the economics, as opposed to all of the money the federal reserve is flooding into the market. is that fair to say? >> yeah, i think that is right. if you go back to 2009, '10, and '11, and see where the fed undertook its first various rounds of quantitative easing, you get these mini boblets that happen in commodity prices. but what is happening actually is that you don't have any upward pressure in the labor markets, and that is what is persistently going to be the ultimate end cause of significant long-term inflation. and we simply don't have that in the economy right now. >> tom: let's begin with energy and pun intended, drilling down to oil here. we've heard a lot lately about american oil producers really producing a record amount of petroleum. oil prices here in the mid-'80s -- what do you forecast in long-term investors in energy? >> yeah.
look, off the $100 highs, again we saw in late august, early september, sitting around and having a range of trading between $80 and $90, and texas intermediate crew, which is a u.s. contract, will stay in the $90 range, where you have higher crude prices coming out of europe and the gulf. >> tom: steady prices there. how about gold? is gold still a long-term buy at these levels? >> it is really difficult to say, tom. you know, you would have expected gold to react quite differently today to the announcement of another $45 billion worth of treasury purchases, and it should have broken through that 1750 level, but it only rallied $15, $20 and settled in five or six. gold is a longer term trade that we're less interested in, and its traditional place in the portfolio as an inflation
hedge seems to be muted at best. >> tom: i want to ask you about grains, after the midwest drought. the harvest attended to be better than expected. do you move away from the grains, waiting for the weather to shake out? >> i think you have to wait for the weather to shake out and you have to wait for last month's planting expections. i think like last year, we will plant a record-sized crop. that and what we see out of the harvest in south america will determine the price for grain in 2013. >> tom: a look at the commodities and the federal reserve. lincoln ellis with us, werethe strategic financial group. and the federal reserve's big move. and that looming fiscal cliff, we'll have an update on that tomorrow.
>> susie: investors were on fed-watch, tom, and it was very interesting watching the blue chip dow average as ben bernanke was giving his press conference. the dow got as high at 80 points, and the more he talked about the fiscal cliff and other issues facing the economy, it went down, down, down, closing down three points. >> tom: any of the enthusiasm that came out when the federal reserve announced it was going to continue to buy bonds slowly deflated throughout the afternoon, the longer the chairman tended to speak. there was less enthusiasm about what the federal reserve is doing. maybe less concern about why the federal reserve is doing it. let's go ahead and take a look at our "market focus."
the major stock indices couldn't hold on to their midday gains as the federal reserve's efforts to stimulate the economy couldn't keep buyers enthusiastic. volume was moderate-- 693 million shares on the nasdaq. under 1.8 billion on the nasdaq. the technology sector had the biggest percentage losses, down 0.4%. the telecommunications sector saw the best gains, up 1%. hi-tech storage stocks pressured the tech sector as an analyst raised concerns about competitive risks. the concerns were focused on disk drive maker seagate technology. shares fell 3.1%. j.p. morgan cut its investment recommendation to underweight, pointing to weaker personal computer trends. data storage firm e.m.c. was lower by 2.6%. the nasdaq exchange, like many exchanges, is expanding to diversify from stock trading. the nasdaq agreed to buy a unit of thomson reuters that concentrates on investor relations and multimedia
services. the price was $390 million. it was enough to push nasdaq shares higher by 3.8%, leading the financial sector. fellow exchange operator n.y.s.e. rallied 1.6% in an otherwise lackluster broad market. health insurer aetna expects both revenue and profit to increase next year as more of the health insurance reform law goes into effect. but aetna's brighter outlook didn't necessary transfer to other health insurers. aetna rallied by 3.2% to its highest price since april. cigna shares gained 1.6%. a company involved in a different kind of insurance, among other businesses, is warren buffett's berkshire hathaway. the firm increased it's stock buyback program. the berkshire board okayed a $1.2 billion buyback. these specific shares come from the estate of what the company called a longtime shareholder.
the company said it was willing to pay 20% over book value to buy back its stock. that's twice the limit it previously set. that increase helped push both the "a" and "b" shares of berkshire higher. the high-priced "a" closed at $134,000; the "b" shares finished at $89.32. both were up 2.4% to their highest price since october. global construction and mining equipment maker joy global struck profit growth in the latest quarter even as the company expects big equipment spending to fall next year. the company earned 2.5 cents per share, well above last year and estimates. the company's buyout of le- tourneau helped improve its bottom line. joy global's muted outlook for next year didn't hurt its shares; they were up 4%. fellow big equipment maker caterpillar gained 0.7%. four of the five most actively traded exchange traded products were up. the lone loser was the nasdaq 100 tracking fund, slipping
0.2%. and that's tonight's "market focus." >> susie: tomorrow on "n.b.r.": nearly half of baby boomers say they're not ready for retirement. tomorrow, we'll show you one couple who are ready and show you how you can do the same. and we'll look at how some companies are preparing for the new health care rules that are coming soon. >> tom: this week, it became legal in the state of colorado to use marijuana without a doctor's recommendation. it's the second state to do so; washington was the first. the legal fate of these state laws is uncertain since federal law still considers marijuana illegal. but the legal business of
marijuana is already growing in 18 states where it is allowed for medical use. we recently spoke with tripp keber, c.e.o. of dixie elixirs, a company that makes marijuana- infused products. >> tom: tripp keber is the owner of dixie elixirs. he joins us from denver, colorado. tripp, do you consider yourself in the drug business? >> i absolutely do not. we have been in the business for the last three years of making medicine for patients here in the state of colorado. by that, we certainly don't consider ourselves drug-makers. >> tom: considering you sell not marijuana specifically, but elixirs derived from marijuana, where do you get your raw materials? >> we have a 50,000 scare foot cultivation facility in denver. and that cultivation facility feeds our manufacturing facility, here in denver, colorado as well. and we control is called from seed to sale. >> tom: seed, you grow
it, and you derive the compounds from it to make your elixirs and sodas and other products? >> we take the raw plant material and have a can canabus oil, and we in fuse it to nine different delivery systems, what we call product lines that represent 65 unique products we serve here in the state of colorado. >> tom: tripp, could your business have existed 10 years ago? >> not really. it is less than 10 years across the country. and california was leading that effort. in the last four years, the state of colorado really became the forefront of this movement, and certainly in the last two and a half years, things have really stabilized. colorado has been extremely thorough in providing a strongly regulated and compliant model that i think many other states are starting to look at in develop their models after. >> tom: to that point, tripp, how limited is your
market geographically? >> you're talking about 105,000 patients to probably a million consumers of the product overnight. that will be conservative when you take in the marijuana tourism aspect of it. in effect, the market has grown 10-fold. >> tom: your website says your parent company does not grow or distribute any substance that violates the united states law or the controlled substance act. how do you put this together, colorado state lou allowin al -- allowing for consumption, but the federal law does not. >> they do not actually own anything directly related to the cultivation, manufacturing or distribution of the these in fused products. we only the intellectual process, from red dice holdings, which i'm a c.e.o., but we're absolutely committed to
making sure we adhere to all state and federal laws as it relates to the ownership of these companies. >> tom: you did $3 million in revenue in the last quarter. what does next year look like? >> i would imagine the next 12 to 14 months, the revenues will grow to excess of a billion dollars. currently my company, dixie elixirs, distributes to just under 500 of the 523 medical marijuana centres in the state. i would say our distribution will position us very nicely for what the overall growth in the market will offer. >> tom: tripp, we have to leave it there. tripp keber with us, the owner of dixie elixirs. tomorrow, we'll hear about dixie elixir's business model and whether legalized recreational use is new competition. >> susie: it's being called the largest event in music history. tonight, madison square garden will play host to some of the biggest names in music for a concert benefiting hurricane sandy relief. now, regardless of the big names on stage, donors want to make
sure whatever they give makes the biggest impact for those who need it. ruben ramirez reports. >> reporter: billy joel, the who and bruce springsteen are just a few of the headliners at tonight's 12-12-12 sandy relief concert. the sole beneficiary will be the robin hood foundation. the organization provides funds to about 200 non-profits in the new york area which work directly with sandy relief. bob ottenhoff is the president and c.e.o. of the center for disaster philanthropy. >> most giving to disasters occurs in the first month, but as we now know with sandy the challenges to relief to disasters go on for a long period of time. so we're still going to need lots of charitable contributions for the recovery and rebuilding period. >> reporter: the red cross has already raised $188 million for sandy relief and expects to use more than half of that by the end of the month. but with every disaster, there are always some bad actors.
new york state has been at the forefront of holding non-profits accountable. the state attorney general has asked more than 75 charities to show where their sandy relief donations are going. >> these scammers tend to take advantage of people in emotional situations, when they're very concerned about things like disaster relief, and will respond to an ad or an email without really taking the extra step of checking. >> reporter: schneiderman hopes other states follow suit and ask non-profits to disclose information about the reputability of their organization. more than two billion people around the world are expected to tune in to tonight's concert, raising more than $60 million. ruben ramirez, "n.b.r.," new york. >> tom: that's "nightly business report" for wednesday, december 12. have a great evening, everyone. and you, too, susie. >> susie: tom, we're coming to the close of 12-12-12. and i hope it's been a good day for you. thanks for watching, everyone. join us online at www.nbr.com and back here tomorrow night.